Palantir Stock Trading at Exuberant Valuation Amid AI Excitement

Palantir Stock at a Glance

• Fair Value Estimate: $9.00
• Morningstar Rating: 1 star
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

Palantir Stock Update

Over the past few weeks, narrow-moat Palantir’s PLTR value has skyrocketed to more than $16 per share, up from just under $8 in early May. The rise, catalyzed by strong first-quarter results, has left Palantir trading significantly higher than our $9 fair value estimate.

We believe investors should tread with caution, as we don’t think the dramatic uptick is currently backed by a similar rising strength in the firm’s fundamentals. While we maintain a positive outlook on Palantir’s business, future growth opportunities, and increasing target addressable market, we believe the company’s shares are currently overvalued.

While our fair value estimate is substantially below the firm’s stock price, our estimates are anything but pessimistic. Our top- and bottom-line estimates for the next three years are all above consensus. Despite these robust growth expectations and margin expansion, we struggle to rationalize Palantir’s current market valuation.

AI Benefits for Palantir Look Nebulous

A substantial part of the recent excitement surrounding Palantir stems from its involvement in artificial intelligence. At the same time, the uplift in Palantir’s financials due to AI is slightly more nebulous. We believe investors should wait and look for concrete evidence of the positive financial tailwinds generated by AI. This evidence would include an acceleration in the firm’s forward-looking indicators, such as billings over the next few quarters. Similarly, we’d expect strong customer additions as buyers increasingly turn to Palantir to leverage AI for business outcomes.

To justify its lofty valuation, Palantir’s financials must catch up, as investors are betting on the company’s ability to not only accelerate growth in the upcoming quarters but also keep up that level of growth for a longer period than previously anticipated.